Burma is a combustible place. This month, ethnic riots have erupted in the country’s far western Arakan (or Rakhine) state, claiming at least 17 lives, according to Burmese state media. A state of emergency was declared late on June 10 as gangs of Buddhist Arakanese and Muslim Rohingya (also known locally as Bengalis) clashed, looted and set fire to hundreds of buildings, according to local news reports. Curfews were set in the most affected towns.

A crossroads nation sandwiched between India and China, Burma is composed of a patchwork of fractious ethnicities that were bound more by colonial diktat than by any historic sense of community. Tensions between the country’s majority Bamar (or Burman) population and various ethnic groups — the Kachin, the Shan, the Karen, the Chin, the Mon and the Arakanese, to name just a few — have for decades driven civil insurgencies in the country’s borderlands. Other internecine strife, like conflagrations between the Arakanese and the Rohingya, is also depressingly common.

Still, the news coming out of Burma over the past couple of months has been surprisingly positive. The country’s military-linked leaders, who took power last year, have respected the landslide victory by the democratic opposition in April 1 by-elections. (The polls involved few parliamentary seats, but the loss was, nevertheless, an embarrassment to the current government, which is controlled by forces connected to the military junta that ruled Burma repressively for nearly half a century.) Political and economic reforms have piqued the interest of Western governments and companies, leading to hopes that an era of punishing economic sanctions will give way to boom times, tapping the country’s plentiful natural resources. Then last month, Nobel Peace Prize laureate and opposition leader Aung San Suu Kyi made her first trip abroad in nearly a quarter century, a sign that she trusted the country’s new hybrid civilian-military government enough to let her back home.

But in recent days, the feel-good narrative in Burma, officially known as Myanmar, has grown more complicated. Suu Kyi’s high-profile visit to Thailand, where she attended the World Economic Forum on East Asia, seems to have caused the country’s reformist President Thein Sein to cancel his own plans to attend the same conference, spurring worries that the détente between these two political titans could falter and set back Burma’s reform movement. Last month, protests over Burma’s chronic electricity cuts — the classic case of a hydrocarbon-rich country unable to power itself — hit the major cities of Rangoon and Mandalay. Meanwhile, ongoing fighting in northern Kachin state between government troops and a local ethnic militia has claimed hundreds of lives and triggered a refugee exodus, despite Thein Sein’s promises of a cease-fire by the Burmese side. Then came the race riots in Arakan.

Perhaps the biggest dilemma facing Burma today is how to solve what’s gingerly called the issue of “the ethnics.” Officially, some 100 ethnic groups live in Burma, but there are many more diverse tribes crowded into the country. One sizable group are the Arakanese (also known as Rakhine or Arakan), who share a Buddhist heritage with the Bamar yet feel their history as a once independent kingdom has been suppressed by Burma’s majority ethnicity.

Another marginalized section of society are the people locally called Bengalis and known internationally as Rohingya. Considered illegal immigrants by the Burmese government, most Rohingya have no claim to Burmese citizenship. Yet many Bengalis, who are originally from what is now Bangladesh, settled in Arakan during colonial times when populations moved freely between the British-controlled regions of Asia. Although some Rohingya have succeeded in business, others are among the poorest of Burma’s considerably impoverished populations. Without access to even the most basic services available to Burmese citizens, many of the estimated 750,000 Rohingya are sequestered in crowded camps that they cannot leave without special permission. Thousands of Rohingya have set out on dangerous sea voyages to other Southeast Asian nations to work as illegal laborers, wagering that a life abroad is better than an existence in a homeland that refuses to accept them.

The Arakanese have little love lost for the Bamar, and an antigovernment insurgency movement has flared on occasion. The crushed monks’ protests of 2007 began, in part, when a group of Arakanese gathered to honor a local monk who gave his life to the independence movement against the British but whose legacy had been downplayed by the Bamar-dominated ruling junta. Even though Arakan state boasts rich hydrocarbon potential, locals feel that most wealth from deals with the Chinese, Indians and South Koreans will flow into Bamar pockets, not Arakanese ones.

But when I was in Sittwe, the capital of Arakan state, this April, I was also struck by the depth of Arakanese anger toward the Rohingya. Arakanese went out of their way to tell me how much they despised the Bengalis, whom they accused of invading their land and waging a war of fecundity. “The Bengalis, they have six or seven children,” one Sittwe local told me, complaining that the Arakanese might one day be a minority in their own home. And how many children, on average, did the Arakanese produce? “Four or five,” came the response.

The most recent race riots appear to have been galvanized by the rape and murder of an Arakanese woman late last month. After leaflets began appearing in Sittwe blaming Bengalis for the attack, Arakanese lynched a group of Muslim pilgrims from central Burma who were traveling on a bus, beating 10 of them to death. Reprisal looting and violence then spiraled over the weekend, resulting in at least seven fatalities.

The two sides, as might be expected, tell widely divergent tales. Wong Aung, an Arakanese exile in Thailand who runs an environmental NGO, says he has spoken with friends and family members in Arakan, who allege that Bengalis are not only setting fire to houses of Arakanese families but also to their own mosques and homes in order to gain international sympathy. “Women are being raped and killed, heads are being chopped off, kids are being thrown into the fire, and bodies are being burnt,” says Wong Aung, blaming what he calls “Bengali Rohingya terrorists” for the latest violence. “In addition, more than 30 villages have been burnt down, and the authorities found some guns and grenades in the mosque and Bengali Rohingya houses in Sittwe.”

The Rohingya have a different take. They claim they are the victims of a long repression campaign by local Arakan and Burmese force — and that their religion, Islam, is being unfairly associated with terrorism because of global politics. Three years ago, I met surreptitiously with impoverished members of their community in Sittwe. They were among the most terrified people I have ever met — and this was in a country where most people under the fist of then ruling military regime were spooked about talking to foreigners. I had been told by knowledgeable Arakanese that these Bengali villagers had illegally immigrated to Burma a decade or two before and that many bribed corrupt border guards to get Burmese identity papers. But one Rohingya patriarch I spoke to said he was born in Arakan, just as his father and grandfather before him had been, a family tree agreed upon by all the other Muslim villagers I met. In hushed tones, the Bengalis spoke of being conscripted for forced labor by the former junta. They said there were not able to travel even inside Arakan without expensive permits because of their lack of citizenship. (Some Rohingya said they used to have citizenship but their national ID cards were taken away by the previous junta.)

After Burma’s independence in 1948, sectarian strife has erupted sporadically between Arakan’s Muslims and Buddhists. The most recent major spasm of communal violence occurred in the mid-1990s. Throughout the years, the specter of Muslim men raping Buddhist women has been used to stoke fear among Arakanese, a race-based scare tactic surely familiar to Americans.

The one thing the feuding sides are united in is their distrust of the central government, whether it’s run by a junta or the new hybrid civilian-military regime. Both sides say central authorities have tried to fan sectarian flames in Arakan. “The government is fully responsible for the law-and-order situation in the whole country,” went one public statement from Rohingya and human-rights activists. “It should not make the Muslims scapegoats, but it has full responsibility to protect the rights, honor and dignity of all citizens.”

Equally, while the mood in Bamar-dominated parts of Burma was jubilant after the April 1 by-elections, I found the atmosphere in Arakan far less buoyant. Arakanese Buddhist monks talked of continued repression and worried that any future foreign investment would elude locals. There were few pictures of Suu Kyi in evidence, compared with her omnipresence in Rangoon and other parts of central Burma. In Arakan, signs for the Rakhine Nationalities Development Party, a local political force, outnumbered those for Suu Kyi’s National League for Democracy.

Even Thein Sein, who has tried to broker peace agreements with other ethnic groups, acknowledges the danger that ethnic strife poses to the whole reform process Burma is currently undertaking. In a speech on Sunday, he warned: “If we put racial and religious issues at the forefront, if we put the never ending hatred, desire for revenge and anarchic actions at the forefront … there’s a danger that … the country’s stability and peace, democratization process and development, which are only in transition right now, could be severely affected and much would be lost.” As always in the tinderbox that is Burma, one match could set off completely unexpected and tragic results.